Analysis & Opinion

HAVANA (Reuters) - Brazilian builder Odebrecht SA ODBES.UL will begin administrating a Cuban sugar mill next week in the first sign the industry is ready to accept foreign participation since the 1959 revolution, two company sources said on Wednesday.

Odebrecht subsidiary, Compañía de Obras en Infraestructura (COI), is expected to sign the agreement with state-run sugar monopoly AZCUBA on Friday, according to the company sources and two diplomatic sources.

COI has been working in Cuba for a number of years building new port facilities at Mariel Bay, just west of Havana.

"Under the agreement we will manage the mill for 13 years, upgrade it and bring in new machinery for the harvest and cane transportation," said one of the Odebrecht sources, who is an executive involved in the project.

"We start next week for this harvest that begins in December," he said.

More than 170 million metric tonnes of sugar were produced worldwide in 2011. Cuba accounted for 1.4 million tonnes, or less than one percent.

Talks between potential sugar investors and the government have come and gone for years with few results.

At least three other companies are negotiating management agreements, according to two different company representatives.

Foreign capital and management know-how could help to revive a sugar industry that has collapsed from neglect and lack of investment in mills and plantations.

President Raul Castro, who assumed power from his ailing brother Fidel Castro in 2008, is trying to revive the country's economy through reforms passed by the Communist Party in 2011 that call for more foreign investment.

Odebrecht said in January that it planned to enter the Cuban sugar industry, but one of the company sources said minor details had held up the project. He said that final Cuban government approval had just been granted.

"The company is already organizing, studying the plant and surveying plantations to increase productivity," the general director of Brazil's export promotion agency in Cuba, Hipolito Rocha, told Reuters, referring to the 5th of September mill in Cienfuegos province, around 100 miles southeast of Havana.

Rocha said an initial investment of US$60 million would be made in the pilot project. "Brazil can give a great deal to Cuba, a lot of technology, equipment and modern equipment," Rocha said.

HELMS-BURTON LAW AN OBSTACLE

Theoretically, the state-run sugar industry has been open to direct investment since 1995, but in practice there has been little interest on the government's part except in a few joint ventures making sugar derivatives such as alcohol and parts used in sugar processing.

A big obstacle is the U.S. Helms-Burton law, which penalizes investment in properties seized from U.S. owners decades ago. The law also contains a yet-to-be implemented section that would allow Cuban-Americans to sue investors who "traffic" in their expropriated properties.

All but eight of Cuba's remaining 56 mills were built before the revolution and therefore nationalized, and most plantations are lands expropriated by the government after Fidel Castro took power in 1959.

Foreign investors are forbidden by law to own land in Cuba. There is little need for them to own property, however, for proposed sugar ventures when they can simply administer mills, provide farmers with technology and process the cane.

Cuba was once the world's biggest sugar exporter with raw output reaching 8.1 million tonnes in 1989, but the industry went into decline after Cuba's main ally for 30 years, the former Soviet Union, collapsed in 1991.

Cuba shut down and dismantled 71 of 156 mills in 2003 and converted 60 percent of sugar plantation land to other uses. Since then more mills have closed.

The Sugar Ministry was closed late last year and replaced by AZCUBA, with subsidiaries in each province.

The state-run company hopes to reverse the long decline in output with plans to produce some 1.68 million tonnes of raw sugar this season and 2.4 million tonnes by 2015.

Fifty of 56 mills are scheduled to grind during the upcoming harvest, which runs through April.